Rumours of a merger between the Reserve Bank and the Property Council have been greatly exaggerated.

The Bank will need no help to do whatever it takes to keep Auckland homeowners safe from any dip in property prices.

The RBNZ’s Chief Economist recently said, “The worse situation we’d face right now is actually if we had house prices falling.”

Yes, it would be terrible. Poor Auckland homeowners. Print enough money and house prices will soon hit $2 million. Problem solved.

But why is a central bank talking about housing at all?

The reason is that the Reserve Bank is responsible for financial stability. Housing affects financial stability. So now the Reserve Bank runs Auckland.

The Bank can get a mandate to regulate anything if it can show something affects financial stability. Needless to say, the process for obtaining this mandate is extremely rigorous.

First, the Governor must deliver a speech to a Rotary Club that is attended by at least four people and there must be biscuits at half time.

Next, the Bank must provide supporting evidence. The evidence does not need to have anything to do with what the Governor actually said. However, evidence must include the words “financial” and “stability” in at least two places.

The final step – and this is crucial – is that the Minister of Finance must decide not to sack the Governor no matter how much he might want to.

If the Reserve Bank can complete these three difficult steps, its constitutional mandate to rule is secure, obviously.

It turns out many things can lead to financial instability. Recently, the Governor said he thinks one of those things is climate change.

Fortunately, the worst effects (of climate change, not the Governor) are still years away, and there is much uncertainty.

Which means the Reserve Bank’s mandate is anything which might lead to financial instability. That kind of umbrella is rather wide. What else might fit under this mandate?

How about Covid-19? Or the entire health care sector? What about education? The movie industry? The education in movies industry? Shoes?

How about printing money?

Of course, a Reserve Bank that regulates itself could lead to financial instability. That is a problem that calls for regulation of the Reserve Bank’s regulator. By the Reserve Bank. It’s turtles all the way down.

How about the financial stability effects of elections?